Factors That Affect the Cost of Homeowners Insurance

Imagine your home burning to the ground, leaving everything you own in cinders. Perhaps a neighbor stops by to visit on a snowy afternoon, slips on your icy driveway, falls and suffers a serious injury. Homeowners insurance keeps those costs from coming out of your pocket. The cost of that policy depends on a number of factors.

The Big, Bad Wolf Factor

Those three little pigs were onto something -- a brick house is more durable than other construction materials. As a result, homeowners insurance policies for brick houses cost less than those for wood frame houses, because brick homes are less likely to become completely flattened during fires or natural disasters.

Location, Location, Location

Insurance companies offer lower rates to homeowners who live in areas where the overall number of claims is low and higher rates in areas of greater risk. For instance, areas where wildfires or tornadoes are common have higher rates. Areas where burglaries are more common also have high rates. To enjoy low rates, find yourself a home in a neighborhood with a low crime rate. Live in an area that’s not prone to natural disasters. Choosing a home that’s located near a water source and within the service area of a highly reputable fire department also can reduce the cost of your policy.

All That Glitters Costs More

Your policy premium also is based on the amount it will cost to replace your house if it’s totally destroyed. If you own a home worth $2 million, your policy will cost much more than if your home is worth $100,000. Your policy doesn’t take into account the value of the land you own — just the value of the house. Your policy will cost more if you’re insuring a lot of expensive personal property such as guns, furs and jewelry. If you have a swimming pool or trampoline, that also increases your insurance costs.

Studying History

Insurance companies favor those with a history of sound financial management. Most states allow insurance companies to base rates on credit scores, and the National Association of Insurance Commissioners reports that, in states that do, 85 percent of homeowners insurers use customers’ credit reports as a factor for establishing premium rates. Your credit-based insurance score is different than your regular credit score. It’s based on your payment history, outstanding debt, length of credit history, pursuit of new credit and the mix of credit reporting (credit cards, mortgage, etc.). The better your score, the better your rate. Insurance companies also prefer customers who don’t have a history of filing claims and give discounts to those who insure both homes and cars together.

Your Assets and Liabilities

An alarm system, sprinkler system, smoke detectors and other protection devices will earn you a discount with many insurance companies. However, your pit bull and pet rattlesnake will add to the cost of your premium. A home business also raises rates, since you’ll need an additional endorsement for office assets and may need to increase your liability for personal injury, if clients come to your home regularly.